Drs. Narwin Doekhi CPA, CMA, CGMA

FASB’s Accounting Standards UpdatesASUs issued during 2011 effective for annual periods ending 2012 with permission of the Financial Accounting Foundation for use of FASB material Drs. Narwin Doekhi CPA, CMA, CGMA

Course Objectives • High Level Review of FASB Accounting Standards Updates (ASUs) issued during 2011 and effective for annual periods ending 2012 • The main provisions • Update preparers of US GAAP financials, and get them up to speed • Encourage preparers to perform further research on the new accounting standards • Informing what we do

Disclaimer • The contents of this coursework provided have been prepared with reasonable care, that means the author has made every attempt to provide the most accurate information available using internal and external resources to prepare this course but he makes no representations, warranties, or guarantees regarding the accuracy, correctness or completeness of any opinions, advice, statements, instructions or other information provided in or by the material or the other contents and features of the course • It is your responsibility to investigate and evaluate the accuracy, correctness, reliability or completeness of any opinions, advice, statements, instructions or request further clarification from the author

Introduction • Effective July 1, 2009, changes to the source of authoritative U.S. GAAP, the FASB Accounting Standards Codification™ (FASB Codification), are communicated through an Accounting Standards Update (Update). Updates are published for all authoritative U.S. GAAP promulgated by the FASB, regardless of the form in which such guidance may have been issued prior to release of the FASB Codification (e.g., FASB Statements, EITF Abstracts, FASB Staff Positions, etc.) Updates are also issued for amendments to the SEC content in the FASB Codification as well as for editorial changes

Introduction • An Update is a transient document that • summarizes the key provisions of the project that led to the Update, • details the specific amendments to the FASB Codification, and • explains the basis for the Board's decisions • Although ASUs will update the FASB Codification, the FASB does not consider Updates as authoritative in their own right

Introduction

The FASB Numbering System • FASB ASC XXX-YY-ZZ-PP • For example, one of the classification codes for Derivatives and Hedging is: • 815 = Derivatives and Hedging (Topic) • 815-25 = Fair Value Hedges (Subtopic) • 815-25-35 = Subsequent Measurement (Section) • 815-25-35-1 = General (Subsection paragraph 1)

A: ASU 2011-01/2 • Update No. 2011-01, Receivables (Topic 310): • Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings (TDR) in Update No. 2010-20. • Update No. 2011-02, Receivables (Topic 310): • A Creditor's Determination of Whether a Restructuring Is a Troubled Debt.

A: ASU 2011-01/2 • In evaluating whether restructuring constitutes a Troubled Debt Restructurings, a creditor must separately conclude that both of the following exist: • The restructuring constitutes a concession. • The debtor is experiencing financial difficulties. • This update provides additional guidance

A: ASU 2011-01/2 • IFRS does not have guidance on troubled debt restructurings. • IFRS 7, Financial Instruments: Disclosures, requires the disclosure of the carrying amount of renegotiated debt, which is defined as debt whose terms were renegotiated that otherwise would be past due or impaired without that renegotiation.

B: ASU 2011-03 • ASU No. 2011-03, Transfers and Servicing (Topic 860): • Reconsideration of Effective Control for Repurchase Agreements • When transferor is deemed to have maintained effective control over the financial assets transferred it must account for the transaction as a secured borrowing

B: ASU 2011-03 • The amendments remove the following from the assessment of effective control: • The criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed upon terms, even in the event of default by the transferee, and • The collateral maintenance implementation guidance related to that criterion

B: ASU 2011-03 • The IASB’s derecognition guidance is provided under IAS 39, Financial Instruments: Recognition and Measurement. • The consideration of a transferor’s ability to repurchase or redeem financial assets transferred on substantially agreed terms, even in the event of default by the transferee, is not required under IFRS. • The amendments in this Update improve convergence by eliminating from U.S. GAAP the need to consider this criterion.

C: ASU 2011-05/12 • Update No. 2011-05, Comprehensive Income (Topic 220): • Presentation of Comprehensive Income • Update No. 2011-12, Comprehensive Income (Topic 220): • Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Update No. 2011-05

C: ASU 2011-05/12 • Entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. • The previously allowed option of showing the components of OCI in the statement of changes in equity is no longer allowed. • These amendments do not change the items that must be reported in OCI or when an item of OCI must be reclassified to net income • To be applied retrospectively

C: ASU 2011-05/12 • IFRS currently permits components of other comprehensive income to be presented either in a single statement or in two consecutive statements. Therefore, the amendments will result in more converged guidance on how comprehensive income is presented under both U.S. GAAP and IFRS. • Minor other differences in reporting comprehensive income between U.S. GAAP and IFRS will remain

D: ASU 2011-07 • Update No. 2011-07, Health Care Entities (Topic 954): • Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (a consensus of the FASB Emerging Issues Task Force) • Increase transparency about a health care entity's net patient service revenue and the related allowance for doubtful accounts.

D: ASU 2011-07 • Certain health care entities will need to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from revenue. • Additionally, these entities are required to provide enhanced disclosures about their policies for recognizing revenues and assessing bad debts. • This change in presentation will result in the presentation of net patient service revenue which is closer to the amount that the health care entity expects to collect. The new disclosures will assist users in better understanding how health care entities recognize patient service revenue and assess bad debts

D: ASU 2011-07 • The amendments relating to the presentation of revenue should be applied retrospectively to all prior periods presented. The disclosure amendments should be provided for the period of adoption and subsequent reporting periods. • IFRS does not currently require similar presentation or disclosures as set forth in the amendments in this Update.

E: ASU 2011-08 • Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): • Testing Goodwill for Impairment • Reducing the cost and complexity of performing the required annual tests for impairment of goodwill. • ASC 350 requires that all companies which have goodwill on their books test it for impairment annually • This test is a two-step process. The first step is to determine the fair value of the reporting unit, which can be both cumbersome and expensive

E: ASU 2011-08 • An entity now has the option to first assess qualitative factors to determine if it is" more likely than not" that the fair value of a reporting unit is less than its carrying value. If it is NOT more likely than not, then performing the two-step impairment test is not required. • In making this qualitative assessment, an entity shall assess relevant events and circumstances. Examples of such events and circumstances include the following: • Macroeconomic conditions • such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets

E: ASU 2011-08 • Industry and market considerations • such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (consider in both absolute terms and relative to peers), a change in the market for an entity's products or services, or a regulatory or political development • Cost factors • such as increases in raw materials, labor or other costs that have a negative effect on earnings and cash flows • Overall financial performance • such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods

E: ASU 2011-08 • Other relevant entity-specific events • such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation • Events affecting a reporting unit • such as a change in the composition or carrying amount of its net assets; a "more likely than not" expectation of selling or disposing all, or a portion, of a reporting unit; the testing for recoverability of a significant asset group within a reporting unit; or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit • If applicable, a sustained decrease in share price (consider in both absolute terms and relative to peers).

E: ASU 2011-08 • If a company determines that facts and circumstances indicate that the fair value may be less than the carrying value, then the full two-step impairment test is required. • In making the qualitative assessment, management should consider the extent to which each of the adverse events or circumstances identified could affect the comparison of the reporting unit's fair value with its carrying value. • More weight should be placed on those events which are more likely to affect either fair value or carrying value than those that would not affect these values. An entity should also consider positive or mitigating circumstances that might limit the potential impairment.

E: ASU 2011-08 • International Accounting Standard 36, Impairment of Assets, requires an entity to test goodwill for impairment using a single-step quantitative test performed at the level of a cash-generating unit or group of cash-generating units. • The test must be performed at least annually and between annual tests whenever there is an indication of impairment. IAS 36 requires an entity to compare the carrying amount of a cash-generating unit with its recoverable amount.

F: ASU 2011-09 • Update No. 2011-09, Compensation - Retirement Benefits - Multi-Employer Plans (Subtopic 715-80): • Disclosures about an Employer's Participation in a Multiemployer Plan • Disclosures to increase awareness of the commitments and risks involved with participating in multiemployer pension plans • Applies to nongovernmental entities that participate in multiemployer plans

F: ASU 2011-09 • Requirement of additional quantitative and qualitative disclosures, including: • The significant multiemployer plans in which an employer participates, • The level of an employer's participation in the significant multiemployer plans, • The financial health of the significant multiemployer plans, • The nature of the employer commitments to the plan

F: ASU 2011-09 • For plans for which users are unable to obtain additional publicly available information outside the employer's financial statements, the employer is required to make additional disclosures, including the following: • A description of the nature of the plan benefits • A qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer • Other quantitative information, to the extent available, as of the most recent date available, to help users understand the financial information about the plan, such as total plan assets, actuarial present value of accumulated plan benefits, and total contributions received by the plan.

F: ASU 2011-09 • For public entities, the amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted • For nonpublic entities, the amendments are effective for annual periods for fiscal years ending after December 15, 2012, with early adoption permitted. • Retrospective application for all prior periods presented.

Effective for 2013: ASU 2011-10 • ASU 2011-10: Property, Plant, and Equipment (Topic 360): • Derecognition of in Substance Real Estate - a Scope Clarification (a consensus of the FASB Emerging Issues Task Force • Resolving the diversity in practice about whether the guidance in Subtopic 360-20 applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt.

Effective for 2013: ASU 2011-11 • ASU 2011-11: Balance Sheet (Topic 210): • Disclosures about Offsetting Assets and Liabilities • Entities will be required to disclose both gross information and net information about financial instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.

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Drs. Narwin Doekhi CPA, CMA, CGMA